Do You Really Need Life Insurance for Your Family?

Our own mortality is a topic we don’t like to discuss. I was reminded again of this recently when a friend of mine had open heart surgery. He is doing great and expected to make a full recovery. But as I sat in the waiting room with his wife and family during the surgery, I kept thinking how her life would change if things took a turn for the worse.

There are so many questions after the death of a spouse. Some of those questions relate to money. It may seem insensitive to link death and finances together but it’s a reality we can’t ignore.

What would happen if your spouse died today? Would your financial life come crashing down also? Would your family suffer because you weren’t prepared for this event?

Fortunately, those questions can be answered. The best part is you can settle it and have peace of mind before anything happens by purchasing a quality life insurance policy.

What is Life Insurance?

Like any other type of insurance, life insurance is a contract between you and an insurance company. You pay a monthly premium (or payment) to the insurance company. In return, the surviving family member(s) (usually a wife and/or children) will receive a lump sum payout which they can choose to use in many different ways.

The goal is to provide your beneficiaries financial help and security once you are gone. The last thing they need to be worrying about is how they will pay for expenses. When you purchase a life insurance policy, you are protecting your loved ones from undo financial stress.

Struggling financially after a death is an undo stress because it can be prevented. It can be taken care of now while you are still alive. Your responsibility to your family does not end when you die.

That’s the mindset my wife and I are taking. We are in our early-40s, both work and have four kids ages 8-15. We have many years of financial responsibility in front of us.

More importantly, we have dependents who will be counting on us to provide for them at least through high school but hopefully through college. That’s 10-15 years at the minimum where the financial stakes will be very high.

Those are my circumstances. But maybe you are in a different phase of life. So let’s look at four scenarios and see if life insurance is actually needed in each case.

Do You Need Life Insurance at This Time?

You may be saying, “OK, that’s all fine and good. But do you need life insurance at all points of your life? It seems like a wasted expense based on my life circumstances.”

It’s actually a great question to ask. Here’s a simply exercise to aid your thought process:

Tomorrow something dreadful happens and you die. Answer these questions based on that fact:

1. How will you pay for funeral expenses which can easily reach into 5-figures?

2. Who is counting on you for financial support right now? Spouse, children, other?

3. What joint account holders will be responsible for the family debt when you die?

4. What are the future plans, goals and dreams of those you leave behind?

5. Could those left behind adequately support themselves with no help from you?

Here are a few life scenarios to consider:

The Single Person: Most singles would not need a comprehensive life insurance policy. They do not have a family counting on them for support. Their debt is their own and in almost all cases it cannot be passed on when they die.

The issue for a single person is how they will pay for funeral costs. As I mentioned, that can become expensive. Of course the extended family will probably pick up the tab for that. But why make them? It would be a kind gesture and the responsible thing to do to account for your own burial expenses. In that case, a minimal life insurance policy designed to cover those costs would be adequate.

Newly Married Without Kids:In this scenario, both spouses are probably working and they have no children. But it isn’t a given they don’t need life insurance.

Debts like school loans, auto loans or a mortgage could be a big financial strain. Emergency savings or investments could be swallowed up with funeral costs. And perhaps the second income earner of the pair doesn’t have a salary adequate enough to meet those needs let alone live comfortably on their own.

The more financial risk a newly married couple has the more a life insurance policy makes sense.

Married with Kids:Of any scenario, this one makes the most sense for having a life insurance policy. In fact, I’d say it’s a must. It is negligent and irresponsible to not think of your loved ones at this point.

My wife and I took out our first life insurance policy on me right before our first daughter was born. I did not want my wife to worry about money after I was gone. Additionally, I wanted her to have the flexibility to make wise choices about the family’s future. If she wanted to take the lump sum payout and live off that for awhile while my daughter was an infant, I wanted her to have that choice.

Since then we’ve had three more children. We’ve increased the payout amount on my policy twice and purchased an additional policy for my wife who now works.

Should something happen, there will be enough money to cover grade school and college tuition payments, clothes, vacations, my two daughter’s weddings and anything else the future holds for the family. I sleep very comfortably at night knowing that is the case.

The Retired Couple: The retired couple may not need to consider life insurance. Theirs is a situation similar to the married couple with no kids. However, there may still be debt issues, lifestyle choices or health concerns to consider as they age.

If the couple as saved wisely, paid off all debt and invested wisely for 30+ years, they may be able to self-insure. In other words, they have accumulated enough money to carry one spouse through the rest of his or her life should the other one pass away. In that case, holding a life insurance policy would be irrelevant because there would be enough money to live on.

Where Do I Start?

For my money, a term life insurance policy is the best type of life insurance to buy. It’s called term insurance because it lasts for a specific amount of time. The term (the number of years) will vary depending on the policy you purchase. The policy expires once the length of the term passes. At that point you will be without life insurance or you can choose to purchase another policy.

So if I were to die, my beneficiary (my wife) would receive a payout from the insurance company according to the terms of our policy.

I prefer term insurance for several reasons. For starters, it’s a simple product that is really easy to understand. The market for selling the product is very competitive with companies trying to earn your business. Because of that, it’s the most affordable type of insurance, which is great for my monthly budget. I can take the money I save with term life insurance and put it towards investments that will grow over time.

Because term life insurance is such a simple product, it’s easy to find prices on policies. One such place to look and compare prices is SelectQuote. They have been in business for over 30 years and are experts in finding the lowest cost life insurance policies for your family’s needs. The options out there are pretty comprehensive to fit any life situation.

In summary, your personal circumstances determine whether or not you need a life insurance policy. But as you have seen, there are things to consider at every stage of adult life. You can’t afford to not think about it. The more financial risk you have and the more people counting on you to cover that risk are the two biggest factors to weigh.

Paying for life insurance is a selfless act to help others. Because I see it that way, I’m entirely OK writing the checks for it every year. It’s a small price to pay in the here and now to give me peace of mind for what might come one day.

Questions for Discussion: Do you have life insurance? When did you take out your first policy? How have you seen it benefit your family or a family that you have known?

Disclaimer: This article was sponsored by SelectQuote, but all thoughts and opinions are my own.

For my day job, I'm a high school government and economics teacher and school counselor at a private Christian school. In my off hours, I love collecting baseball cards, running my rental real estate properties, going on vacations with my four kids and hearing my wife talk about all the cool things CPAs do at work. You can connect with me on Facebook,Twitter and Google+.

Comments

That is an important thing to ponder on: Do I need a life insurance? I think yes on the basis of my situation having two kids. It’s better to prepare even for unimaginable circumstances than not, Brian. This form of security is of importance.Liz recently posted…The Best $500 I Spent This Year

Another interesting article. This is why I return to the blog over and over. I’m interested in your perspective on people having life insurance from a believer’s point of view. I read a book many years ago written by a preacher who basically said if you believed in the Lord you should not have any kind of insurance because that indicated you didn’t trust the Lord to provide for you in a time of need. That disturbed me since I was always taught to look out for myself and prepare for adversity.

Thanks for the comments Kathy. That advice from a preacher is pretty misguided. Taking his logic, why then would we even work for a salary to provide for our family? I’m not discounting God’s ability to provide in our time of need but even Adam and Eve had a responsibility to work in the Garden of Eden to take care of themselves.

I’d counter with this from I Timothy 5:8, “But if anyone does not provide for his own, and especially for those of his household, he has denied the faith and is worse than an unbeliever.” The Bible in many places talks about being wise stewards with what we are given and the wisdom of planning ahead for adversity. I think that includes using insurance products of all kinds.Brian recently posted…5 Personal Finance Items to Evaluate at Least Once a Year

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